UK pensioners Since April 6th 2015 can use their pension pots to invest in buy to let property as an alternative to annuities and funds. And today’s news that annuities are at an all time low means that the attraction of property investment is highlighted all the more.
Pensions in annuities guarantee income for people in retirement but with rates plummeting, it means the returns on offer are small. The Daily Express reports rates falling by around 6% and around 30% compared to 2008 rates.
It’s not difficult to see why property investment now looks attractive to pensioners.
Put simply, according to www.sharingpensions.co.uk, a £133,000 pension fund will result in £33,000 payment and then anywhere between £3775 and £5485 per year. That’s around 3.7-5.5% return.
Now compare that to having £133,000 to put into property. Relatively easily you can get five 25% deposits out of that. That will buy you £500,000 worth of property approximately.
Providing you buy well and get the properties rented you should earn around £2500 per month in rent. Once you pay off mortgages/fees etc., then you should expect a return of anywhere between 5-10% on your original investment, so £5000-£10,000, which is above the annuity rate of return.
And the beauty of property is that there is capital appreciation as well. According to the Halifax prices rose 8.5% in 2014. So using that figure, the £500,000 of UK property bought instead of the annuity would now be worth £42,500 more. Or adds £3541 per month to the rental income.
Of course you cannot spend that money until you sell the property, but the appeal of earning a better monthly rate of return supported by capital gains that can be cashed in later on has broad appeal compared to annuities that are sinking fast.
The impact on the buy to let market is expected to be strong as pensioners flood into property, especially against the backdrop of the UK housing shortage and little real investment to turn that around. The UK is likely to be a nation of renters for some time.
We can expect the demand in the property sector to remain strong, which means pensioners getting in early could benefit from rising prices early in the cycle.
But renting brings its own costs and work, more so than annuities. Right at the top of the list is landlord insurance and you can get the best from The Property Insurer, which compares three of the best providers in the UK and delivers the best UK Insurer backed policies at the lowest prices.